Negotiating engineering and construction contracts.

NEGOTIATING ENGINEERING
AND CONSTRUCTION CONTRACTS

WILLIAM

BY

E. DUNNING

//

A REPORT PRESENTED TO THE GRADUATE COMMITTEE
OF THE DEPARTMENT OF CIVIL ENGINEERING IN
PARTIAL FULFILLMENT OF THE REQUIREMENTS
FOR THE DEGREE OF MASTER OF ENGINEERING

UNIVERSITY OF FLORIDA

FALL 1992

T259703

DEDICATION
Tom Reid

ACKNOWLEDGEMENTS
Manny Delgado

i

TABLE OF CONTENTS

INTRODUCTION 1

CHAPTER 1 GROUNDWORK FOR NEGOTIATIONS 4

Laying Foundations 4

Climate Formation 5

Constructive Climate 5

Aggressive Climate 6

Establishing Procedure 7

Control of Negotiations 8

Preparing for Negotiations 9

Technical Preparation 9

Mental Preparation 10

Developing Alternatives 13

CHAPTER 2 PERFORMING THE NEGOTIATION 15

Introduction 15

Exploration and Fact-Finding 15

Bargaining and Agreement 17

Principled Negotiation 18

Constructive Bargaining 20

Aggressive Bargaining 22

CHAPTER 3 NEGOTIATIONS BEFORE & DURING THE CONTRACT . . 24

Negotiations Before the Contract With Competition 24

Negotiations Before the Contract Without

Competition 25

Negotiations During the Contract 26

Negotiating Change Orders 27

Determining Contract Liability 27

How Change Orders Are Born 2 8

Combining Costs For Change Orders 31

Determining Schedule Impact 35

Finalizing the Proposal 36

Conclusion 37

CHAPTER 4 MULTI -SIDED NEGOTIATIONS 38

Introduction 38

The Key To Chaired Negotiations 3 8

ii

Unanimous Assent in Minimum Time 39

Establishing a Positive Meeting 39

Opening the Meeting 4 0

Conducting the Meeting 42

CHAPTER 5 NEGOTIATING TACTICS 43

Tactics and Countertactics 43

Aggressive Tactics and Countertactics .... 44

Constructive Tactics and Countertactics ... 54

Non-Verbal Communication 58

Body Language 58

Silence 60

CHAPTER 6 SUMMARY AND CONCLUSIONS 62

REFERENCES 66

iii

INTRODUCTION

There is no profession with a greater necessity for
negotiating skills than Engineering and Construction. The
verbs engineer and negotiate are synonymous. The truth is
that negotiations constitute part of every engineer's job
responsibilities (Scott, 1990 /Gallant , 1989) .

"We negotiate with the labor union, with other
departments, with our boss, with our peers, and with the
people under us. We negotiate for people resources, for
project money, for responsibility on an assignment, and for
support from a service department." (Gallant, 1989) As
buyers or sellers, we negotiate for engineering and
construction contracts.

Basically, we negotiate whenever we do not have the
authority to say, "This is the way it will be done." Or, we
may have the authority, but hope to get a stronger commitment
from our subordinates by soliciting their participation
(Gallant, 1989).

Developing good negotiating skills will make each of us
a better engineer or supervisor. But having good negotiating
skills is not enough. We must know when to apply them. We
should be able to answer questions such as:

1

How should negotiations before the contract (is signed)
be carried out from both the buyer's and seller's
viewpoint.

How does the buyer and seller approach negotiations
during the contract?

Is he aggressive and confrontational with a winner take
all objective or is he constructive with a "win-win"
objective?

The aim of this report is to answer these questions and
more. It focuses on the different stages of negotiation as a
construction project goes from concept to completion. Both
the buyer's (Owner's) and seller's (Designer's/Contractor's)
view points are considered.

The importance of preparing both technically and mentally
for negotiations is emphasized. Performing the negotiations
is viewed in phases. Exploration and fact-finding to confirm
assumptions, and the actual bargaining towards agreement make
up the negotiation performance phase. Principled
negotiation, constructive negotiation, and aggressive
negotiation are three bargaining strategies the negotiator may
choose from.

Negotiation strategies may change depending on which
stage the project is at. Constructive approaches are
recommended for sellers negotiating before the contract.
Whereas the buyer may obtain some advantage by negotiating
aggressively before the contract. During the contract it is

2

the seller who may gain advantage by negotiating aggressively.

Multi-sided negotiations are often part of engineering
and construction contracts. The chairman or team leader must
effectively control the content and flow of negotiations. He
must concentrate all his energy on his role as chairman and
not delve himself into the technical points of the
negotiation. He uses communication skills, both verbal and
non-verbal to control the members and the content of
discussion.

Tactics are an inherent part of all negotiations. Even
if one does not use tactics, it is necessary to understand the
dynamics and reasoning behind them. Because, whether you use
them or not, others will use them to gain maximum advantage.

3

CHAPTER 1

GROUNDWORK FOR NEGOTIATIONS

Laving Foundations

Scott's (1990) phrase, "Laying foundations", refers to
establishing credibility and a positive image. These
foundations are formed and placed well before negotiations
begin.

Buyers will have either a positive or negative image of
seller. This perceived image influences the seller's
negotiation strength. The bottom line is that, "...in
negotiating, the perception of reality may be more important
than the reality itself." (Rutherford, 1986)

The buyer uses his own staff of engineers and financial
advisors to develop his project. During, this early stage of
project development, he is likely to have many prospective
sellers and has to narrow his choice to a short list (Scott,
1990) .

The Seller Engineer is rarely in a position to bargain in
commercial terms with the buyer during this early stage.
However, he may be asked to join in technical negotiations
during pre-qualification rituals.

If so, the wise seller explores the buyer's requirements
and what his needs are. His strategy is to display some

4

ability appealing to the buyer that will give him an edge over
his competition.

Scott (1990, p.10) gives the example of his company being
the first experts on dry dock construction. This placed them
in a privileged position as negotiations developed with the
owner of a proposed dry dock.

Climate Formation

Scott (1990) generally prefers the negotiation climate to
be constructive vice aggressive . This is especially true
during the partner-building stage before the contract.
Constructive Climate

Constructive negotiating occurs when the parties consider
themselves partners. People who are anxious to work together
towards a win-win agreement. A constructive climate takes on
the following characteristics:

° Cordial
° Cooperative
° Brisk/Businesslike
Cordial

Scott (1990) recommends the following guidelines to

establish a cordial climate:

The cordial characteristic will not be achieved if the
parties are in business the first moment they meet.
People need time to establish a common wavelength, time
free from the heavy load of negotiating their different
business interests. For a minor negotiation, this time
may be the ice-breaking ritual at the start of a half-
hour meeting. For a major contract the lead time may be

5

spread over contacts which have taken place during months

or even years.

Cooperative

Cooperation between the parties is enhanced if they can
establish their ability to agree. Early agreements on
relatively straight forward issues such as procedure or scope
establish a cooperative climate.

Brisk/businesslike

Of course, efficient engineers cannot afford simply a
cordial and cooperative climate. They require a brisk and
businesslike climate as well.

Aggressive Climate

Aggressive negotiating occurs when each party mistrusts
and suspects the other. Each party is determined to assert
their side and exploit the other's. Each party wants to get
concessions, not to give any. This climate is seldom
preferred but often occurs and must be identified.

The Aggressive Pattern

The climate in an aggressive negotiation is also brisk
and businesslike. However, it is not very cordial or
cooperative. Scott (1990) gives the illustration of a tough
and abrasive negotiator. As a matter of principle, he rejects
the first suggestion made. "If you ask him whether he would
like to sit down, he'll spend the whole meeting standing up."

The aggressive negotiator tries to exploit from the
beginning. He looks for weaknesses the moment he enters the

6

negotiating room. Even the casual phrase 'How's business? ' ,
from him may be an attempt to find weaknesses (Scott, 1990) .

The exploration and fact-finding phase described in
Chapter Two will be cut short by an aggressive negotiator. He
will want to move straight into the bargaining phase. He will
bargain aggressively. Often using tactics described in
Chapter Five. Instead of mutually agreeing on procedure as
described in the next section, he will assert his own (Scott,
1990) .

Establishing Procedure

The first thing to agree upon in a negotiation is
procedure. Scott (1990) suggests a routine of breaking the
ice, sitting down at the table and opening with the question,
"Well, can we just agree on procedure to start with?"
Assuming we word it more tactfully, the only answer is, 'Yes'.
We have just sat down and are already agreeing. The
cooperative climate has been established.

Avoiding confusion is another reason to begin by agreeing
on procedure. In any negotiating meeting, the following
procedural areas may have been assumed:

° Purpose
* Plan
° Pace

7

Purpose

Do not assume that the other party is coming to the
meeting with the same purpose in mind as you. They may be
coming to evaluate our technical competence and to receive
details of a technical proposal from us. We may be looking
for a briefing on the technical requirements, so we will be
able to prepare a technical proposal (Scott, 1990) .

Plan

The plan or agenda must also be clarified to avoid

confusion and make the best use of the next component, time.

Pace

The time agreed to complete a negotiation determines

negotiation's pace. If no time limit is set, the negotiations

may continue aimlessly without reaching agreement.

Controlling negotiations will aid in keeping a good pace
(Scott, 1990) .

Control of Negotiations

Controlling the way a discussion develops is very
important for two reasons. First, the efficiency of
discussion. Taking the essentials at a measured pace and
avoiding trivia and sea stories. Second, control is powerful.
He who steers the discussion is in a powerful position.

Controlling what is discussed is relatively simple. Just
follow your plan or agenda. The pace, however, may be
extremely difficult to control. The content of the discussion

8

alone demands a great deal of your attention, leaving very
little concentration for control. Scott (1990) suggests it
can become a reflex action to check the clock periodically.

There are two periods at which it seems helpful for this
reflex to operate. One period is hourly, when it becomes
sensible to take a refreshing break. The other period is
every 15 or 20 minutes when one of the following questions is
appropriate :

° Can we just summarize how far we have gotten?

° Are we making enough progress on this issue to meet our
agenda?

° Should we be moving on to consider...? (Scott, 1990)

Preparing for Negotiations
Technical Preparation

We take it for granted that any engineer will do his
technical homework. He will first evaluate items under his
control. He will develop his negotiation boundaries, the
highest and lowest acceptable positions and will know the
rationale for each demand leading to these positions (Scott,
1990;Rutherford, 1986) .

If negotiating a contract, he may determine terms and
conditions that are essential, and the nice to have, but, not
necessary terms and conditions.

Then, after planning his own strategy and establishing
his position, he should develop an objective analysis of the

9

other party's positions. He should envision the terms and
conditions the opposite party may present that are acceptable
but not really desirable. By evaluating the positions of both
sides, he will help both parties get what they want
(Stallworthy, 1987) .

Mental Preparation

Again, it is taken for granted that he will prepare
technically for his negotiation. But how does he prepare for
his role as a negotiator? The engineer has to be prepared to
offer, receive, and interpret information. At the same time
he has to control the pace and content of the discussion. For
any negotiator, it is more than a full load. It is an
overload. Overload is a certainty in any negotiation.

However, we can reduce the degree of overload (Scott, 1990) .

One way to reduce overload is to have a set of routines
to follow. A routine of always agreeing on procedure at the
beginning of a negotiation is a good example. Another way is
to get our thinking prepared before the negotiation.

In any negotiation, the mind will have to operate in
three different modes:

0 As a transmitter
° As a receiver
° As a controller

Transmitter

As a transmitter the mind must present our side of the
negotiation. The mind needs to be clear before that

10

presentation. Scott (1990) suggests the technique of listing

four key words which highlight the four most important points

to be presented. The benefits of only presenting the four

most important points is illustrated below:

...do not present all the evidence in your favor. If
there are a dozen points in your favor, you can be sure
the other party will instantly seize on the twelfth, the
weakest. So the negotiation concentrates on the twelfth
and you are exposed to negotiating on the strength of
your weakest point. It won't do. Concentrate your
presentation on the four favorable points which are
irrefutable and forget the rest.

Although this method may not be applicable for all
presentations, it seems particularly well suited for handling
controversial issues. It also can help to reduce overload.
But for four key words, the mind is clear and ready to
present.

However, if our preparation stops here, we are not ready
to listen. Our mind is prepared only for presentation and
nothing else; we try to blank out anything that interferes
with our presentation. This is why a skilled negotiator
prepares to listen as well as to present.

Receiver

His listening preparation starts by thinking through the
information he needs to receive during discussion. Again,
Scott (1990) suggests organizing that thought into four key
words .

This preparation alerts the mind to its function as a
receiver. "We know what we are looking for, and so we are
also alert to incoming messages." In practice, we seldom get

11

all the information we were looking for (all four key words) .
But we do grasp the other party's viewpoint, a grasp denied to
those who have not sensitized their listening (Scott, 1990) .

Controller

Finally, the mind must be prepared to control the
discussion. This preparation includes listing slightly more
than four key words:

° Purpose One key word

° Plan Four key words

° Pace A couple of figures for duration

Chapter Four illustrates how to effectively control a
meeting using the above criteria.

Pros and Cons

The preparation suggested by Scott (1990) is having four
key words each for presentation, listening and a corresponding
clarity for procedure. But what about the time it takes?

Up to two hours may be consumed the first time the method
is used to prepare for a negotiation. However, the learning
curve is steep and most negotiators find repetitive situations
to use over and over again.

The benefits are:

° Mind prepared to transmit essentials
° Mind anxious to receive essentials
0 Mind prepared to control negotiation
° Overload during negotiation reduced (Scott, 1990)

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Developing Alternatives

Preparation is key to negotiating your "best" agreement.
However, not reaching an agreement may be your "best" option.
We negotiate to improve our present position. But, there is
the possibility of leaving a negotiation with less than you
started. It is easy to lose sight of this if you are totally
committed to reaching an agreement. For example, you worry
about not reaching agreement on a big contract you have
invested a great deal of time in. Under these circumstances,
you are apt to be too cooperative, too accommodating, and too
quick to go along. You may agree to a deal you will later
regret (Fisher and Ury, 1981) .

What we need is a standard to measure any proposed
agreement. Developing alternatives to a negotiated agreement
before negotiations gives us that standard. Such a standard
can protect us from taking a bad offer. It can also prevent
us from rejecting an offer we should have agreed to. Fisher
and Ury (1981) call this standard one's Best Alternative to a
Negotiated Agreement (BATNA) .

The BATNA is your option of not reaching agreement. The
attractiveness of this option determines the relative power of
the opposing negotiators. Value Engineering theory may be
used to develop possible BATNA' s. This involves brainstorming
or other techniques to create a list of alternatives. The
more promising ideas are judged and ranked. Focus should be on
the best, most practical alternative. It may be so good that

13

negotiations are not necessary to reach our goals (Fisher &
Ury, 1981) .

Having a practical alternative to a negotiated agreement,
gives us the option of walking away. Knowing its
attractiveness, gives us the knowledge to decide when. The
option of breaking off negotiations gives one self-confidence
and greater power to influence the outcome (Fisher & Ury,
1981) .

14

CHAPTER 2

PERFORMING THE NEGOTIATION

Introduction

So far we have laid solid foundations of trust and mutual
respect. We have prepared both technically and procedurally .
We have got our thinking together beforehand and are ready to
transmit, receive and control information. We have

established a cordial, cooperative, yet, brisk and
businesslike climate. Now we are ready for the crux of the
matter, negotiating the contract (Scott, 1990) .

Exploration and Fact-Finding

After introductions and opening remarks we should not
jump headlong into what may be the major issues of the
negotiation. Instead, we need to verify what the major issues
really are (Naval Facilities Contract Training Center (NFCTC) ,
1987) .

This means we must validate each assumption made in
arriving at our present position. Assumptions are a vital
part of the negotiation. We will make assumptions, but we
must be careful not to rely on them as absolute facts until
they are validated. We validate our assumptions during the

15

exploratory or fact-finding phase of the negotiation (NFCTC,
1987) .

The best way to validate assumptions is through the use
of guestions. Statements should be avoided. Questions
educate. Statements of fact may put people on the defensive
and lead to argumentation. For example, "Your quantity of
concrete is twice what ours is!", may cause the other party to
get defensive and put him in the position of justifying his
position. Whereas, "Did you use 20' X 40' X 4" to calculate
your quantity of concrete?", would allow him to answer a
simple straight forward question (Fisher and Ury, 1981;NFCTC,
1987) .

Questioning, probing, listening and understanding are the
basic communication skills involved in the exploratory phase.
Sometimes it is advisable to plan questions in detail, as in
a "closed" interview. But in other cases the "open" interview
approach is better. The questions in this case are broad and
are designed to stimulate broad responses. This technique is
more effective in producing unsolicited answers (and more
information than they may have wanted to divulge) than the
detailed questioning method (NFCTC, 1987) .

The probing technique is necessary when questions receive
vague or guarded answers. This technique involves a series of
questions concerning the same subject matter. Each vague
answer receives another question which "digs in" deeper to
elicit an adequate answer. Probing also involves asking the

16

same question in different ways. If an answer is not
satisfactory, use different approaches. Rephrase the question
or postpone it for awhile and ask again until adequate answers
come forth (NFCTC , 1987).

Misunderstandings often cause unintentional disputes. An
excellent way to make sure you understand your opponent's
position is to rephrase it and ask if your understanding is
correct. Understanding is a must. Without such
understanding, a viewpoint cannot be countered effectively.
This may lead to pointless and unintentional arguments.

Finally, the exploratory session is strictly exploratory.
During questioning there is a strong temptation to counter
your opponent's position immediately. But to do so would
destroy the purpose of the session. You would find yourself
inadvertently negotiating points sooner than you had intended.
As a consequence your exploration will be disorganized and
incomplete (NFCTC, 1987) .

Bargaining and Agreement

From the exploration and fact-finding stage we move on to
the bargaining and agreement stage. Just how successful the
negotiating process is to proceed and whether it will be
successful will be determined primarily by your bargaining
strategy. Some people maintain that an aggressive strategy
yields the best results. Others opt for a constructive
strategy.

17

Principled Negotiation

Perhaps one of the most effective strategies is
principled negotiation. It is based on deciding price issues
on merits, rather than through a haggling process focused on
what price each side says it will and will not accept.
Principled negotiation is a strategy that should be successful
regardless of what tactics are adopted by your opponent
because it looks for mutual gains whenever possible. It is
hard on merits and soft on people (Fisher & Ury; 1981, Warden,
1989) .

Primary objectives of the principled negotiation approach
to bargaining are to:

° Separate the people from the problem
° Focus on interests, not positions
' Invent options for mutual gain
0 Insist on objective criteria.

Separate the people from the problem

Separating the people from the problem endeavors to
address interests and untangle emotions from the objective
merits of the issues being negotiated. Separating people from
the problem looks at issues side by side rather than face to
face. The participants should "...see themselves as working
side by side, attacking the problem, not each other." (Fisher
& Ury, 1981)

18

Focus on interests, not positions

Focusing on interests and not positions usually will
uncover alternative solutions to a negotiating problem. For
example, a certain price may be a seller's position when
negotiating an indefinite guantity contract. But why does he
need that price? Is it the risk he anticipates? Will the
price be less if there was a guaranteed minimum? Would
allowing him to use an on-site storage shed to reduce his
travel costs satisfy him? What about guality, delivery and
service, which are important interests and should be key
elements in the bargaining process? Discovering the seller's
motivating interests may reveal alternative positions which
satisfy everyone's interests. (Fisher & Ury, 1981;Warden, 1989)

Invent options for mutual gain

Inventing options for mutual gain before deciding what to
increases the chance of meeting the interests of both sides.
Fisher & Ury (1981) give the example of two sisters quarreling
over an orange. After arguing for an hour on who gets the
orange they decided to cut it in half. One sister ate the
orange and threw the peel away. The other sister used the
peel to bake a cake and threw the orange away.

Negotiators often end up like the sisters. If their
interests and options had been examined, each would have had
the whole fruit or the whole peel rather than only half of
each. Inventing options can be accomplished through
brainstorming or other techniques.

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Insist on objective criteria

Insisting on an objective criteria is vital when one
argues his position rather than interests. By discussing
alternatives through objective criteria like value engineering
instead of a stubbornly held position on price, both parties
are yielding to a fair solution (Warden, 1989) .
Constructive Bargaining

Constructive principles of bargaining include the
following:

0 Ensure value
° Identify issues
* Trade concessions

0 Move at a measured pace (Scott, 1990)

Ensure value

Aim for a win-win situation for both sides. Your side
should value what the opponent offers and vice versa. Both
sides are satisfied when they have worked hard and value what
they have received. People put greater value on things they
have to work for. If your opponent's proposal is accepted
without question, he will immediately feel he has made a
mistake. He will not be satisfied unless negotiation occurs.

Identify issues

Clearly establish the scope of negotiations. List issues
and proposals from both sides. Ask your opponent if he has

20

any major or minor objections to your proposals. If so,
prioritize the objections into major and minor discrepancies.
Identifying and prioritizing issues ensures that the primary
interests of both parties are addressed (Scott, 1990) .

Trade concessions

All negotiations involve giving and getting. However,
never give without getting. The only reason to give a
concession is to get one in return. A concession given freely
without conditions may be seen by the other party as weakness
on your part (Rutherford, 1986) . The more willing you are to
give, the less he will value your gift (Scott, 1990) .

Scott (1990) suggests the following phrases once your are
ready to trade concessions:

° 'Well, we have been talking about this issue of (price) for
some time and we do need now to make progress, but can we
first discuss when payments will be made?' (Meaning: 'Okay,
you've made your point on price — I'm prepared to budge on
that provided you will give me a bit on payment terms.')

0 'If you will... then we will...'

° 'If you will give us another couple of months we can reduce
the price by x%. '

Move at a measured pace

Moving at a measured pace refers to the situation where
two parties have negotiated extensively but still have a
difference in price. For instance, the buyer is at $120 and
the seller is at $100. $110 is obviously a likely

compromise. However, one should not propose that compromise
to early. The following example by Scott (1990) illustrates
why:

21

If the buyer recognizing that each party is standing for
their respective figures of $100 and $120, now makes the
compromise suggestion of $110, what does the seller
respond? '$110? But that's impossible. As I've already
explained the least we can possibly manage is $120. ' And
the buyer is now stranded. He has given away the middle
ground. The seller knows that $110 would have been
acceptable and the negotiating ground is now between $110
and $120. The probable settlement area has gone up from
$110 to somewhere between $110 and $120.

Instead, move at a measured pace through the bargaining
stage. For instance, the buyer could offer $105, and the
seller may then counter $115. Then $108/$113 before reaching
a compromise around $110.

Aggressive Bargaining

The aggressive negotiator considers the bargaining phase
to be the heart of all negotiating. Exploration is a
relatively minor phase, to be done with as quickly as
possible. Once the bargaining starts, the basic attitude is
of course get/give. Scott (1990) describes the aggressive
bargaining style as vertical rather than lateral. For
instance, taking any one issue such as price and diving deeply
(vertically) into that issue. As opposed to making gradual
progress on a broader (lateral) front.

There is always a chip-away strategy. That is, get the
other party's offer and then keep chipping away at it,
knocking it down a bit at a time (as opposed to the
constructive strategy of counter-concessions) .

Time is used as a club in aggressive negotiations. If
the other party wants to move quickly, then delay them. They

22

will have to concede something if they want us to move at a
faster pace.

The

aggressive

negotiator

quickly assesses the <

other

party ' s

offers as

acceptable

and not

acceptable.

The

unacceptable items

are split

into two

groups: the

no-

concessions list and the negotiable list.

Within the negotiable group, he prepares for each
negotiable issue. He assumes that it will take several rounds
of negotiating to move from present difference to an
acceptable compromise, and he sets targets for how far each
party should concede in each round. Scott (1990) gives the
following example of an aggressive buyer hoping to settle at
$100 whereas the seller is strong for $120. The buyer might
set the following targets:

° 'The best I can hope to get on this is $107.

0 'After one week I will expect him to come down to $115
and I will be prepared in return to go up to $103.

° 'At the end of the second week he will have to come
down to $110 and I will have to go as far as $105.

° 'That way by the end of week three we should be able to
settle out at $107.

The aggressive bargainer also uses many of the tactics
described in Chapter Five.

23

CHAPTER 3

NEGOTIATIONS BEFORE & DURING THE CONTRACT

Introduction

Negotiation strategies may change depending on which
stage the project is at. Constructive approaches are
recommended for sellers negotiating before the contract.
Whereas buyers may obtain some advantage by negotiating
aggressively (Scott, 1990) . However, buyers should be
reminded that every dollar of design equals roughly $100 in
construction costs. Therefore, it is in the buyer's long term
interest to not pinch pennies on design. At the same time
sellers (designers) should not try to get rich on one project
(Chamberlain, 1985) .

Negotiations Before the Contract With Competition

Negotiations with competition is the stage before the
contract has been signed where the buyer has limited his
choice to a short list. Possibly three to four suppliers.
The seller engineer now has one objective, to be the one
selected (Scott, 1990) .

However, he must weigh that objective against the next
objective, being selected with enough margin to make a profit.
The pressure of the first objective can become tremendous.

24

Such pressure often causes the seller to cut his profit margin
to the bone (Scott, 1990) .

The smart buyer pursues the best possible deal. He looks
at the lowest price, the best technical package, and the best
terms and conditions. He wishes for a supplier offering the
best of all worlds. The reality is that no reliable supplier
can offer the cheapest price with the best terms and technical
package (Scott, 1990) .

This makes it difficult for the buyer to compare the
different offers. He uses his advisors to help him make his
decision. But when all is said and done the bottom line is —
who is the most reliable supplier?

Now is when laying foundations and setting the proper
climate come into play. Did we establish trust and
credibility over the past few months? Did we listen, find out
what the buyer's needs were? Did we identify and prioritize
his objections to our proposals and address the major issues?
If so, we, as the supplier, are in a much better position to
be selected (Scott, 1990) .

Negotiations Before the Contract Without Competition

Negotiating without competition is the stage before the
contract has been signed where the buyer has selected one
seller to negotiate the project with. There is still a lot of
negotiating to do before the contract is signed. Up to this
point, the seller has been negotiating in a constructive

25

manner, often against stiff competition, and 'sometimes in the

face of an aggressive buyer. ' (Scott, 1990) Now, all is

different. As seller, we have been promoted from supplicant

to partner. We are now the experts in our own field. Not

just one of the suppliers being judged.

Although, we can still be replaced, it would weaken the

buyer's position when dealing later with his second choice.

Do we now change from a constructive to a more aggressive

negotiation mode? Scott (1990) suggests no.

The situation calls for a continuity of constructive
negotiation. The two chief parties are still moving to
build their basic agreement (the signed contract) . They
need to do this in the spirit of newly formed
partnership, working to their joint advantage. This
style pays off in two ways. It should enable them to
create the most mutually profitable contract. It should
enable them to enter the performance phase, during the
contract, with the best climate, the best goodwill.

Negotiations During the Contract

Scott (1990) suggests that the seller always negotiate
constructively before the contract. The buyer, on the other
hand, may gain temporary advantages by negotiating
aggressively. Now, during the contract, it is to the buyer's
advantage to negotiate constructively. At the same time, the
seller as designer or contractor, may on occasion, gain
advantage by negotiating aggressively.

26

Negotiating Change Orders

Negotiations during the contract almost always involve
change orders. Since change orders make up a big part of the
negotiator's time it is essential to have knowledge of change
orders. Specifically, the buyer or seller should have a
complete working knowledge of :

° Determining liability for changes.

° How change orders are born.

* How to combine all relevant cost, time and liability
components .

0 How to evaluate and quantify total schedule impact.
Determining Contract Liability

We must look at contract liability to determine if work
is an extra. Contract liability can be more or less than what
is written in the contract. Even if not expressed in the
contract, the contractor (seller) can be subject to implied
liability or negligence. If a clause in the contract is not
legal, ie. , causes harm to someone, it is not enforceable.
The contract expresses responsibilities for each party. When
not barred from a specific contract, the law imposes several
warranties, duties, and responsibilities on the owner,
contractor, and engineer, whether or not they a highlighted in
the contract language. The courts will use these "rules of
construction" to interpret contracts (Civitello, 1987, p.16).

Aggressive negotiation will not resolve an issue of
contract interpretation in a win-win fashion. It requires

27

constructive efforts by each party. For example, if the
buyer tries to shove an extra down the seller's throat, the
seller has two options: be nice, give in and eat the cost; or
fight back and risk arbitration or litigation (Scott, 1990) .

Most sellers like to avoid arbitration against current
buyers. It is bad for future business and for the seller's
reputation. It is also very expensive (Scott, 1990 ; Civitello,
1987) .

Most buyers realize the seller's desire to avoid
arbitration or litigation. Some buyers use this to their
advantage. Scott (1990) doubts that it gives any real long
term advantage to the buyer. "If the seller feels that he is
forced into an unfair 'agreement' he will try to get even on
other issues, and that is likely to cost the buyer more than
he has earned on the first issue."

How Change Orders Are Born

Change orders are a normal part of the construction
business. Buyers and sellers will find themselves way ahead
of the game if they accept this fact. Once a contract has
been signed, the buyer has already taken advantage of the
available competition to get a low price for specified work.
The seller had to assume the most competitive method to
construct the unclear details to get the job. He had to bid
on specified work (and not put in contingencies for
omissions) . If he did not take this approach, he could expect
his competition would.

28

Accordingly, he must scrutinize clarifications in minute
detail. He must get paid for increased scope of work.

The following are common causes of change orders:
Defective Specifications

Defective specifications simply refer to documents
containing flaws. Common reasons for defective specifications
are:

° Cut-n-paste
° Old age
° Inconsistencies

Cut-N-Paste

Two factors increase the probability that cut-n-paste
will directly cause errors in the documents.

1. The technical specifications are an architect's
secondary priority. The design process is what the
architect is best at. Bringing the initiated concept
through final design is what gives the architect great
pleasure. It is only when the design is complete that
the technical specifications and the contracts themselves
are finally assembled. It is not the priority, but an
unfortunate, tedious necessity, as far as the architect
is concerned.

2. The technical specifications are assembled at the
eleventh hour. The design process itself usually
continues until the last possible moment. It is only when
the deadline of the bid solicitation date looms that

29

serious attention is diverted to completing the
specification. What is worse, junior architects and even
clerks may be enlisted to prepare certain portions of the
documents.

Old Age

If a specification's age becomes a problem, it will
usually be on a public project. This is because public
projects are subject to the winds and tides of political
funding. It is not uncommon for a state or federal project to
be shelved for two, three or more years while it waits for the
political climate that will authorize it to proceed.

Inconsistencies

If a specification is subject to more than one reasonable
interpretation, the contractor (seller) has the right to
choose the interpretation. Such inconsistencies may take the
form of:

° Discrepancies between requirements of the plans and
specifications

° Differences between small and large details
° Differences between planned and finished schedule
requirements.

0 Differences between the actual equipment cuts and those
details originally shown in the contract.

Impossibilities

A designer may be blindly following design criteria
without consideration for following construction methods, or

30

not properly coordinating an item with adjacent work. Example
of difficulties include:

° Foundation wall configurations that don't allow removal
of forms.

° Installing anchors in inaccessible areas.

° Equipment that can't fit in the available area (can't
fit 10 lbs in a 5 lb sack... or can't fit through the
door. . . )

0 Illogical construction sequences.

° Inaccessible equipment (after installation) for
maintenance .

Combining Costs For Change Orders

The seller should submit three types of costs for every
change order proposal. These are (Civitello, 1987, p. 196) :

1. Direct costs.

2. Indirect costs.

3. Consequential costs.

Direct Costs

These costs are directly attributable to the changed
work. They include such items as:

° Labor .

° Material.

° Site supervision.

° Off-Site material carrying costs.

° Shipping costs.

0 Restocking charges.

31

0 Additional performance and payment bond premiums.

0 Temporary protection.

° Temporary heat, light and power.

° Material rehandling costs.

0 Safety equipment, staging, scaffolding, and lights...

Indirect Costs

Indirect costs are those items that, although
precipitated specifically by the change, are less obviously
the case. They are harder to apportion to a specific event
and therefore more difficult to count. The differences of
opinion revolve around the question of whether or not to
consider the item as a specifically attributable cost, or to
simply lump it into "overhead." Additional bond premium
costs, for example, get caught up in this argument. There are
two types of indirect costs. Project overhead and general
overhead. Project overhead costs result specifically from the
project itself. They include such items as:

° Job management (superintendent, foreman) .

° Move-in

° Maintaining job (maintaining roads, etc) .

0 Equipment (clerk, pick up, etc.).

° Off-site supervision.

° Change order preparation, research, negotiation, and
associated travel.

0 The effects of project interference and disruption.

° Time delays.

32

° Effective increase in guaranty and warranty durations.

General overhead costs equate to a percentage of the
costs to manage all of the construction company's projects.
They include such items as:

° Home office overhead.

° Taxes, insurance.

° Financing costs.

° Miscellaneous (escalation, inflation) .

Consequential Costs

Consequential costs are the third cost category of every
change and are the most difficult of all to justify. These
costs result from the varied effects precipitated by a change.
Normally to be compensable, the damages they cause must have
been foreseeable to both parties. (Simon, 1979, p.242)

Specific kinds of consequential costs include:

° Strikes.

° Interference and disruption.

° Project delay costs

0 Approval delays that alter the originally anticipated
sequences or conditions.

° Delay in retainage release.

0 Delay in project close out (keeping capacity tied up —
opportunity costs) .

° Delay in contract work (cash flow interruption and
opportunity costs) .

° Canceled contracts.

33

° Lost profit.

° Acceleration.

The strategies for applying all three costs on every
change order will vary between private and public projects.
A seller may place a valued relationship in jeopardy if he
aggressively pursues damages on a private project. However,
on public bid and other low-bid jobs, the approach can be
quite different.

Applying the three costs of every change order will help
accomplish three objectives. First, it can allow you to
collect all the direct costs that may otherwise get lumped
into "overhead" and minimized (or left out of the calculation
completely) . Second, and in some cases more important, it
reserves your rights to claims that may come up later. It may
defend you against claims that may come up against you as
well. Third, in a private contract situation, it will allow
you to present to the owner (buyer) a catalog of all
justifiable costs that you are not pursuing now because of
your "good" relationship. If used this way it can make the
costs of the first two types (direct and indirect) much more
palatable .

A low-bid, public project will be the easiest type to
apply the procedure with minimal risk to future business. The
best way to implement the technique is to use a format which
shows the three costs on every change order. The format must
become a matter of operating policy. This will remove a large

34

degree of personal animosity towards you, especially if the
owner (buyer) thought you dreamed up the form because he had
"deep pockets." If, on the other hand, the form can be
demonstrated to be an established company procedure, the owner
(buyer) will find it hard to blame you.

Determining Schedule Impact

Address additional time on every change order proposal.
Use a direct cause and effect relationship to demonstrate the
additional time required by a specific change. Two schedules
can convincingly demonstrate this: the as-planned schedule and
the adjusted schedule. The differences in end dates, of
course, is the time attributable to the respective change.

The level of complexity of the schedules will depend on
two things. First, if the buyer is sophisticated, use of a
complex scheduling system, such as the critical path method,
may feed his ego. If not, a simple bar chart may suffice.
The second concept involves the nature of the change impact
itself .

If the change involves complex interactions, you may have
to use a complicated scheduling system. However, it may be
helpful to use a proposal that simply begins with a statement
of fact. That so many days have been added to the completion
date by the change. Beyond that, the backup analysis in all
its detail can be attached. The bottom line is to use the
simplest and most straight forward technique that will not
compromise accuracy.

35

If conditions are right, those who do the hard work of
reviewing your proposal may appreciate a simple analysis.
Figure 2 presents the time to complete the changed work:

1. (Date) ready to perform contract work 0 WD

2. Finalize change order/submit proposal 11 WD

3. Owner approval of proposal, req'd by (date) 5 WD

4. Fabricate, deliver, and install the CO work 10 WD

5. Complete affected work 10 WD

6. Total time to complete this change

if approved by (date in 3) 36 WD

FIGURE 2, SIMPLIFIED SCHEDULE IMPACT ANALYSIS

The analysis is technically accurate for a change that
impacts the critical path directly, with no effort
demonstrated to resequence subsequent schedule logic. Buyers
appreciate (and approve) the simplified format more often than
you might think. (Civitello 1987, p.4)

Once you establish the number of days attributable to the
change, cost or $/day is the final component. The on-site
expenses are the most straightforward to compute. All that is
needed is the total of personnel, equipment, facilities and
supplies, and the application of your historical costs. Your
accountant should calculate home office overhead. Figure 3
presents a formula to calculate home office overhead (0/H)
allocable to a project's day:

Total unallocated Allocated daily
Total billings for home office expense home office cost
delayed project X for the period = overhead cost per

Total billings for # Days in delayed day on delayed
all projects for project project

same period

FIGURE 3, SAMPLE HOME OFFICE 0/H DAILY RATE CALCULATION
Finalizing the Proposal

36

Include all the above components under a cover letter
which expresses the following:

° Refers to the earliest change order notification date.

° Summarizes the change order total cost.

° Refers to attached backup data.

° States the additional time that the change adds to the
contract.

° Requires buyer's approval by a precise date.

* Notifies the buyer of consequences of failing to act by
the required date.

° Incorporates all standard and special terms and
conditions and reservations of rights.

Conclusion

Most negotiations before and during the contract should
be conducted in a constructive manner. However, if the other
party is being aggressive, you must obviously fight back.

Aggressive tactics can lead to disputes. You must be
ready to defend yourself. Submitting cost proposals and time
extensions for each change documents knowledge and records
facts. The importance of collecting knowledge and records
cannot be overemphasized.

37

CHAPTER 4

MPLTI-SIDED NEGOTIATIONS

Introduction

This report has focused on negotiations between two
parties. However, it is common for engineering and
construction contracts to involve negotiations between several
parties. This chapter examines the role of the "chairman" as
providing the leadership and control of the negotiations.
This is a demanding task. It requires one's total energy and
concentration. The chairman's goal is to impartially conduct
an effective meeting (Scott, 1990) .

The Key To Chaired Negotiations

The key to conducting an effective meeting lies in the
skill of the chairman. The chairman is usually a very senior
person with exceptional technical skills. He normally
contributes his technical expertise to any discussion.
However, in the capacity of a chairman leading a negotiation,
Scott (1990) suggests that he should not. "Nobody has the
capacity both to be a leading advocate and to be a competent
chairman at one and the same time."

38

Therefore, a chairman should avoid being the expert for
his side. He should delegate that role to someone he trusts
and ensure that he addresses all the technical issues.
Unanimous Assent in Minimum Time

The chairman's main objective should be to reach

unanimous assent in minimum time. Unanimous because people

will be committed to action if they have been part of the

solution. Assent because agreement may not be possible.

Scott (1990) gives the following illustration:

Suppose Alan and Arthur both believe in path A whereas
Brian and Barry are for path B (and David and Douglas
don't much mind). If the chairman hopes Brian and Barry
will agree to path A, he is doomed to a long and
disappointing acrimony. Equally, Alan and Arthur would
not agree to path B. The chairman's technique here is to
get some opinion from a neutral, say David. Say it
points towards B. Then quickly get confirmation from
Douglas towards B. And at earliest to get the more
constructive of the A's — say it is Alan — to accept that
the majority view is pointing towards B.

A reasonable Alan, a reasonable Arthur, can accept that
the majority view is pointing in a certain direction. He
can assent without that loss of face which is forced on
him if people demand agreement.

Establishing a Positive Meeting

Describing the purpose of the meeting in a positive light

is the chairman's first priority in kicking off the meeting.

The following illustration by Scott (1990) shows why:

If the delivery of pumps is late, then half a dozen
busy people can gather, only to hear the chairman open
the meeting: 'We are here today to talk about the late

delivery of the pumps' . They might as well write off the
rest of the day after an opening like that.

A very different meeting will follow if the opening
remark is: 'We are here today to plan for the future of

the project, taking account of revised delivery for the
pumps ' .

39

During the meeting the chairman needs to limit the
discussion to the purpose of the meeting. He must head off
any possible side-track issues. Discussing reasons for the
late delivery is one dangerous side-track to avoid. That way
lies a certain afternoon of mutual accusations, recriminations
and bitterness. To avoid this heated waste of time the
chairman should foresee the side-track and cut it off in his
opening remarks, 'And we don't want to start passing the blame
this afternoon do we?' (Scott, 1990)

Opening the Meeting

The opening first few minutes of any meeting establish
the tempo of the meeting. And the first few seconds of the
opening are the most critical.

The first few seconds of the meeting must concentrate
attention and generate momentum.

Many things can go wrong in those few seconds. There are
always a few members who will be chattering. Calling them to
order can be interpreted as a dictorial thrust. It may be
resented both by those who were chattering and by those near
them.

Equally, some member is likely to be still rustling his
papers, fiddling in his briefcase. His attention is not ripe
to start the meeting.

The technique to achieve the opening concentration is
simple. Chairman sits up, looks around with welcoming smile
then fixes his gaze first of the briefcase fiddler, Other

40

people's eyes switch to the fiddler, he feels the force of
their attention, puts aside his briefcase and stops fiddling.
Chairman now switches eyes to the chatterers, other people's
eyes shift to them, they too feel the force (if they do not a
neighbor will tap them on the shoulder) . As they look up, a
quick smile from the chairman and we are ready to start.

With these few seconds of silence, using his eyes and his
posture to secure attention, the chairman creates the
concentration for the meeting.

Then with his opening words, he creates the momentum.
The pace at which he speaks sets the pace for the meeting. If
he is stuttering and hesitant, he is creating that sort of
pace for his meeting. If his words are hurried he is setting
the standard for a rushed meeting. If he can set a
businesslike balance between the extremes he has the standard
of a businesslike meeting.

His opening words should include the following:

* Welcome

* Purpose

• Plan

• Time

As he works through these opening remarks, Scott (1990)
suggests he should also be involving the members in the
meeting, checking his plan with them, and ensuring their
assent to the procedure.

'Good morning ladies and gentlemen and welcome to this
meeting. As I see it, the purpose of this meeting is to

41

make plans for the future of the project in the light of
revised dates for pump delivery. Is that how you see it?
Jack, is that the purpose as you would see it?'

(Note the detail of waffling on for three or four words
after mentioning Jack's name. Just long enough for him
to collect his thoughts and reply without that hesitation
which would interrupt the momentum being established) .

'May I suggest that we take matters in the following
order .

° First, identify the revised delivery dates.

° Second, see which plans will be affected.

0 Third, agree what decisions we need to take.

0 Fourth, agree on the decisions.

'Will that be satisfactory to everybody? Eileen, will
that enable you to make any points you wish to? George,
alright for you?

'May I also suggest a couple of limits to the
discussion. This is the sort of meeting at which I
suggest it will pay us to avoid wasting time on the
histories of pump deliveries, isn't it? No witch hunts
please, ladies and gentlemen.

'And secondly, I don't think we want to hear excuses or
justifications, do we?

'Our purpose is to plan for the future. We'll take
whatever time is necessary, but may I suggest that we
have our sights on 45 minutes. That is, we aim to finish
by 9:45. Is that acceptable?

'Thank you ladies and gentlemen. The first main point
to consider, then is to identify revised delivery dates.
George, can you tell us about this one please?

Conducting the Meeting

Now, as the meeting develops, the chairman has
established momentum, involved the members, acquired assent to
a procedure and set them off to solve the problem within a
time frame. To meet that time frame he must concentrate hard
on the discussion, to ensure that it keeps on track as he has
suggested.

From now on he needs to talk relatively little himself.
He controls the meeting with gestures of hand and face,
movements of the eyes and changes of posture.

42

CHAPTER 5

NEGOTIATING TACTICS

Tactics and Countertactics

'Resourceful' negotiators use a myriad of ploys and
tactics to throw the other party off balance. Unethical
tactics impede constructive negotiations. They tend to
irritate and alienate; they hurt more than they help. The
criteria for determining if a tactic is unethical depends on
the ethics of the observer (Dawson, 1985;Scott, 1990).

Tactics are an inherent part of negotiations. Even if
one does not use tactics, he needs to understand the dynamics
and motivation for using them. Because, even if you don't use
them, they need to be recognized and countered when someone is
using them against you (Dawson, 1985 ;Karrass , 1970).

While there is probably no all-inclusive list of tactics,
the following are common to construction contract
negotiations. They are arranged as aggressive and
constructive tactics but this grouping could change depending
on how you use the tactic.

43

Aggressive Tactics and Countertactics
Tactic: Discomfort

If you have the home field advantage you can make the
climate as miserable as possible for your opponent. This
can wear your opponent down to a lower lever of
resistance. Turning the heater up and closing all the
windows is a common discomfort tactic.

Countertactic :

Confronting your opponent about these tactics usually
rectifies the situation. If not, break off negotiations.
Never accept poor treatment. Make them come to your
office to negotiate.

Discussion:

This tactic is not advisable. An opponent who is made to
feel uncomfortable may be aware of what is happening and
resent it. He will try to get even the first chance he
gets .

Tactic: The Deliberate Mistake

Deliberately distort issues and figures to create
confusion. Intentional mistakes in your proposal may
hopefully be overlooked in your favor (Martin, 1982) .
Countertactic :

This tactic serves to confuse and deceive you. Point the
errors out to the seller and become extremely angry that
he estimates so carelessly (Civitello, 1987) .

44

Tactic:

"You Will Have to Do Better Than That"

This demand, when used by either side, applies immediate
pressure to the receiver to do just that, better.

Countertactic :

Dawson (1985) recommends the response, "And just how much
better do I have to do?"(p.43). This response puts the
monkey back on the opponents back and alleviates the
pressure .

Discussion:

You will have to do better than that's power is evidenced
by Dawson's (1985) name to coin the phrase, "The Vise."
But why does it work so well? Estimating is more of an
art than a science. There are no right answers. Only
interpretations on methods of accomplishing work, crew
sizes, and production rates. There is always room for
improvement. Neither side knows the exact cost of the
work.

Tactic: Good Guy/Bad Guy

Make life miserable by sending an obnoxious negotiator
along with a good guy ready to trade concessions. The
obnoxious one opens with unreasonable demands and expects
everything for nothing. After awhile he stops talking or
even stomps out of the room with the good guy at his
heels begging him to be reasonable. Once the good guy
starts talking his demands sound very reasonable compared
to his partner's. He's a pleasure to deal with and may

45

cause you to drop your competitive spirit. (Scott,
1990 ;Karrass, 1985).

Countertactic :

Try to see through the obnoxious negotiator's extremely
one sided position and not jump to agree with the good
guy's slightly less extreme one sided position.

Tactic: The Friend at Court

Threaten the buyer with taking the whole matter to a
higher authority. Maybe you play golf with the president
(Warden, 1989) .

Countertactic :

State that he can take it where ever he wants. Be sure
to inform your boss of the situation before he gets to
him.

Discussion:

It is a dangerous tactic — any boss worth his salt will
protect his subordinate from such tactics and react
against the tactic-maker. However, if two negotiators
really are reaching an impasse, they might do well to
push it up the chain of command and let their bosses
settle it. This must of course be a rare case. Passing
the buck does not earn the negotiator kudos. (Scott,
1990, p . 184 )

46

Tactic: Cut and Run

Break off or at least threaten to break off negotiations.
Usually done to divert attention from an area of possible
weakness (Scott, 1990) .

Countertactic :

Difficult to counter. If you really need to reach
agreement you may have to make some concession to keep
him at the negotiating table. Otherwise call his bluff.
If he threatens to cut and run but continues to sit
content ly at the table, he is probably bluffing.
However, if he is gathering up his papers and putting
them in his briefcase then he's probably serious. If you
still want to bother with him offer him a concession
(Scott, 1990) .

Tactic: Make Mountains Out of Molehills.

Make enormous commotion about something insignificant
that will hopefully allow you to squeeze something
through later on the side (Scott, 1990) .

Countertactic :

Difficult to counter. Watch out for a critical item
being slipped in on the slide, followed by a quick
'...any other business..."

Tactic: Fait Accompli

One party may claim that what is being asked for has
already been accomplished and cannot be changed. For
example, a supplier may say he shipped the order because

47

he knew that was what the buyer wanted; therefore it is
not a necessary issue to be negotiated (Martin, 1982) .
Countertactic :

Point out the fact that just because he made a mistake
does not mean you have to pay for it. For example, state
that he did not know what you wanted because the shipment
you received does not meet the specifications.

Tactic: Use of time

Time is money and time is power. Time can also be used
as a club. If the other party is in a hurry to reach
agreement before a deadline we can gain advantage by
slowing things down.

Count ertactic :

Do not let the other party know your deadline. However,
if they find out you may have to buy time. How much to
buy depends on how much the time is costing you. If you
must buy time be sure to get some counter-concession in
return.

Discussion:

The Soviet Union is known well for this sort of tactic in
the political negotiation arena. If they know their
opponent's deadline is short they would put them under as
much pressure of time as possible. For instance, when
negotiating abroad, they would lease plush villas for
years at a time. Time is of no concern to them. Their
negotiation tactic would be to stall until the pressure

48

of their opponent's deadline forces them to make extra
ordinary concessions.

However, it should be noted that the natural sequence of
any negotiation begins with high productivity which
quickly tails off becoming less and less until a final
burst of energy.

Scott (1990, p.76) gives an illustration of going to

China for a three week negotiation. Things move fast for
two or three days but slow down by the end of the first
week. Week two goes very slowly and week three is at a
snails pace until Thursday. Then a sudden burst of
energy occurs, generating activity and development.
Westerners suspect this is a delay tactic. The Chinese
equally suspect a Western delaying tactic.

Both are wrong. It follows the normal pattern in any
negotiation — early achievement yields to detailed
discussions before the final spurt of energy.

Tactic: imposing a Deadline

One party limits the time involved in negotiating — a
deadline to agree.

Countertactic:

Difficult to counter. A deadline can be a powerful
tactic because it implies a possible loss to both parties
involved. The other party does not

necessarily have to accept the deadline as their own, but
in most cases they usually do. (Martin 1982)

49

Tactic: Plead Lack of Authority/ The errand boy

You are negotiating in good faith but any deal will have
to be approved by your boss — meaning, revised upward
later (Scott, 1990;Warden, 1989;Martin, 1982) .
Countertactic:

Make it part of your opening routine to establish the
other party's authority to settle the deal.

Tactic: Poker Face

Give as little verbal or emotional response as possible
during the negotiating process. Never give away any
information. The goal is to get information but never
give any (Martin, 1989;Scott, 1990).

Countertactic :

Try to use body language skills to interpret body signals
emitted. (Discussed at the end of this chapter) .
Discussion:

Some authorities recommend skilled negotiators be trained
to recognize body language signs as well as to send false
signals. Japanese negotiators take this very seriously.
They dedicate one member of a negotiation team to
studying body language (Fisher and Ury, 1981) .

Tactic: Manipulate the Minutes

One party takes it on their own to prepare minutes of the
previous day's negotiation. They hand you the minutes at
the beginning of the next meeting. Do you read them then

50

and there and question their content? If so, you are
probably bound for disagreement on grounds that you are
not prepared to defend (Scott, 1990) .

Or do you ignore the minutes and carry on with the days
agenda? If so, the other party may claim tacit approval
of the minutes.

Countertactic:

Awkward tactic to counter. If you have the resources it
is best to have your side prepare the minutes. If not,
you have to decline accepting the minutes until you've
reviewed them. Watch out for the backlog! If you wait
a week to review them you may be amazed by what you read.
By that time it may be hard to rebuke the discrepancies.
(Scott 1990)

Tactic: The Hip Pocket

Leave room to negotiate. Start out high and then make
concessions, hoping to end up with your target price
(Warden, 1989) .

Countertactic :

Use the fair and Reasonable tactic discussed below, for
instance, quote a commonly accepted pricing standard such
as Means to show his prices are excessive. Become angry
that he would inflate his prices. This should shame him
into lowering his prices to an acceptable range.

51

Tactic: The Empty Pocket

Take a final stand and tell the buyer you have no more
concessions to make (Warden, 1989) .

Countertactic :

Hard to counter if you've made significant reductions to
his original proposal. (which was probably already
inflated using the Hip Pocket tactic) . Probably a good
time to take a break and reevaluate your position. If
you still have significant price differences you need to
show his prices are still excessive as indicated above.
Tactic: Claim Unreasonableness

Make the other party appear unreasonable. For instance,
say the buyer concedes on a number of minor issues asked
for by the seller. When a major issue comes up on which
agreement cannot be reached, the buyer points out all of
the areas in which he made concessions, thus making the
seller appear unreasonable (Martin, 1982) .

Countertactic :

Search your soul to see if you are being reasonable. If
so, do not give in. Point out the magnitude of this
issue compared to the minor issues he has conceded.
Tactic: The Surpriser

Keep the buyer off balance by constantly shifting your
tactics. Never be predictable and make it difficult for
him to anticipate your moves (Warden, 1989) .

52

Countertactic :

Inform him that you recognize the ploy and do not feel it
is productive to reaching a mutually acceptable
agreement.

Tactic: The Flinch

Flinch in shock and disbelief at what your opponent is
proposing. This visible reaction to a quoted price or
proposal can quickly improve one's situation.
Countertactic :

Remain calm while your opponent convulses in disbelief,
act shocked at his disbelief, or even laugh at his
behavior (Dawson, 1985) .

Tactic: Playing Dumb

Play dumb. When your opponent asks you something say,
"Gee, I do not know. What do you think?"

Countertactic :

Attempt to keep moving. Go to other issues. Explain
later again in negotiations. Remain competitive (NFCTC,
1986) .

Discussion:

Acting dumb defuses the competitive spirit. A

competitive negotiation is impossible if one of the
parties is no match for the other. Once the "smart"
negotiator realizes how dumb you are he will probably
lower his guard and may even begin to help you. As Scott

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(1990) puts it, "Virtually no sane adult would steal

candy from a handicapped baby."

Tactic: The Decoy

Elevate and exaggerate the importance of a false issue to
take attention away from the real issue. For example,
insist that you must work on Saturdays even though the
security office is closed on Saturdays. You may have no
intention of doing so, if granted. Later, you will agree
not to work on Saturdays, but only for a price. You have
created a bargaining chip out of thin air (Scott,

1981; Dawson, 1985)

Countertactic :

Concentrate on the real issue. Dismiss the false issue
without giving any concessions. For example, say "Your
contract states working hours are Monday through
Friday. . . "

Constructive Tactics and Countertactics
Tactic: Constantly Use Recesses

Take regular breaks at intervals. Scott (1990)

recommends five minutes in the middle of a one hour

negotiation; Half a day in the middle of a one week

negotiation.

Countertactic :

You could object to taking the recess. However, this is
one of the few universally positive tactics. It allows
each party to summarize and reevaluate their position.

54

It revitalizes energy which may have been lost. Properly
handled, it enables both parties to return refreshed and
eager to seek solutions (Scott, 1990) .

Discussion:

Scott (1990) , lists three characteristics for 'Properly
handled 1 :

° Once a recess is proposed, take it quickly. Otherwise
energy will flag further.

° On reconvening, a mini ice-breaking — let the minds
get re-attuned before getting back to business.

° Restart with summary of how far we've reached and agree
on a new plan for the next phase.

The problem with recesses is the suspicion that the
other party will use them to their advantage. It is a
risk, but we probably need the same opportunity as much
as the other party.

Tactic: The Golf Club

Recommended for team negotiations. The team leaders from
each side stay detached from the conflicts and
controversies between their team members. As impasse
approaches, the leaders leave the scene of the heated
controversy. They go to a place with a calm, light, and
trusting atmosphere which fosters a meeting of the minds.
In America, it is the golf club. In Britain, it is the
'club'. In Finland, it is the sauna (Scott, 1990).

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Countertactic: None needed. It is a good tactic. Agree to

it unless your company's policy prohibits creating the
appearance of a conflict of interest.

Tactic: Never Jump At the First Offer

Don't immediately accept your opponents proposal. No
matter how good the deal is. Always negotiate first.
Countertactic :

Be wary if your opponent has an uncharacteristic desire
to close the deal early. (Look for foam around the
mouth) .

Discussion:

People put greater value on things they have to work for.
If your opponent's proposal is accepted without question,
he will immediately feel he has made a mistake.
Therefore he will not be satisfied unless negotiation
occurs (Scott, 1990;Dawson, 1985) .

Tactic: Fair and Reasonable

Comparisons to other like situations may be used. For
example, he may claim the price for the computer is
equitable because that is what another company is paying
(Martin, 1982) .

Countertactic :

Try to find an independent price comparison such as
Means, etc.

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Tactic: The Actor

Put on a good show by demonstrating your deep commitment
to your position. This adds to your credibility and
sometimes generates sympathy from the buyer (Warden,
1989) .

Countertactic :

Recognize the 'performance' and don't buy the act.
Tactic: The Compromiser

Let's split the difference is a frequently successful
tactic (Warden, 1989) .

Countertactic :

Difficult to counter since it provides a classic win-win
situation. Don't fall for it. State that it is against
your company's policy to split the difference.

Tactic: The Devils Advocate

Argue against the buyer by showing him all the possible
bad results of doing things his way. Show him how he
really may be better off by accepting your proposal
(Warden, 1989) .

Countertactic :

Listen carefully to his arguments. Indicate that you
understand his position but that you do not agree with
it.

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Non-Verbal Communication

Non-verbal communication constitutes more than sixty
percent of all communication. Yet, negotiators use only five
percent of the non-verbal gestures available. This is partly
due to lack of awareness (Riggenbach, 1985, p.10).

Body Language

Body language is a sub-conscious reaction which is hard
to control. The person's true perspective and standpoint is
emitted through their body language. "Actions do speak louder
than words !" (Riggenbach, 1985)

Body language varies between countries and cultures and
between business and social settings. The following body
language gestures are characteristic of American negotiators.

Handshakes

Ice breaking before a negotiation usually begins with a
handshake. The handshake can tell you a lot about your
opponent's attitude. A firm grip with eye contact indicates
self-confidence and an eagerness to conduct business
(Riggenbach, 1985) . A firm grip with eyes dropping to the
floor indicates a lack of self-confidence, possibly hiding
information (Riggenbach, 1985) . A limp handshake may
demonstrate indifference or the inability to make decisions
(Riggenbach, 1985) . The one who turns his hand over desires
to control and dominate the negotiation (Riggenbach, 1985) .

58

Nervous and anxious people tend to have sweaty palms
(Riggenbach, 1985) .

Superior Attitudes

Superior attitudes may be illustrated by several
gestures. Forming a triangle or pyramid with one's hands and
placing them under one's chin is a sign of superior
evaluation. Expect questions (Riggenbach, 1985) . Hands
folded behind the neck and/or crossing one's legs indicates
extreme self-confidence. He may be tough to communicate with
in this position. He thinks he knows it all. Riggenbach
(1985) suggests placing something on the desk in front of him
to review. This brings him out of his superior position.

Doubt

If a person has his hand on his mouth with his thumb
locked under his chin he probably does not agree with what you
are saying. Now is a good time to get his opinion
(Riggenbach, 1985) .

Evaluation

Riggenbach (1985) stresses the importance of knowing when
someone is listening to you. When they hear you your chances
of agreement increase. For example, if one rubs his ear, he
may be saying, "I heard what you said, and I am thinking about
it.''

59

The examples illustrated here are sound, but people are
different and so is the meaning of their body language. For
example, a person may have his arms crossing his chest because
a) he is cold, b) he feels fat, c) it is comfortable for him
to do so, or d) you have said something to make him feel
defensive (and you may want to back off ) .

As with any communication skill, the interpretation of
body language cannot be perfected in the classroom. It must
be practiced in order to be used effectively. One should not
depend solely on body language. It is only a clue to the
other persons true feelings. Interpreting body language,
tempered with common sense, can be very effective in making
negotiations constructive (Riggenbach, 1985;Dawson, 1985).

Silence

Silence is an extremely effective and simple to use form
of non-verbal communication. It can function as a magnet to
lure out information. It's use and importance should not be
overlooked.

Silence during a conversation is embarrassing to most
people. A five second pause in a conversation seems to last
a lifetime. People will talk just to avoid their uneasiness.
Unsolicited talking can furnish valuable information to the
patient, quiet negotiator. An experienced negotiator is not
prone to dispense a lot of information just to fill a void.

60

But an unseasoned or anxious negotiator will often divulge far
more than he intended. The desire to replace silence with one
more argument or justification is immense. One must not
succumb to this desire (Karrass, 1974) .

When using silence as a tool, listen very carefully. The
importance of listening is well documented. Karrass (1974)
considers listening a concession. "Listening is the least
expensive concession one can make. It can well be the most
important." It is a concession that does not cost you
anything, yet it is very valuable to your opponent. He wants
you to approve of what he says . He wants you to understand
and believe him. Above all he wants to be heard. By
listening intently you give him what he wants and you get
valuable negotiating information in return. Both sides
benefit from listening.

Body language and silence are effective negotiating
tools. Spend the time to perfect these tools and make a
conscience effort to use them whenever possible. Your efforts
will be well rewarded.

61

CHAPTER 6

SUMMARY AND CONCLUSIONS

The need for good negotiating skills in engineering and
construction is well documented. "Negotiating constitutes
part of every engineer's job responsibilities." (Gallant,
1989) . This report focused on engineering and construction
contract negotiations from both the buyer's and seller's
perspectives .

Chapter One, Groundwork for Negotiations , concentrated on
the early stages of negotiations. Foundations of mutual
respect and trust should be laid well in advance of arriving
at the negotiating table. We should be prepared both
technically and mentally to transmit, receive and control
information. Our goal is a cordial, cooperative, brisk, and
businesslike climate.

Performing the Negotiation . Chapter Two, splits the
negotiation process into two major stages: the exploratory and
fact-finding stage; and the bargaining and agreement stage.
The exploratory and fact-finding stage is an information
gathering session. Assumptions, issues and objectives are
evaluated for validity. Strategies are altered to reflect new
information before entering the bargaining and agreement
stage.

The bargaining and agreement stage involves moving
towards an agreement which satisfies each party's needs.
Principled negotiation, constructive bargaining, and

62

aggressive bargaining were three bargaining strategies
discussed. The negotiator's strategy will be determined by
several factors: the ethics and personality of the negotiator;
his opponent's strategy and tactics; and the phase of the
negotiation.

Chapter Three, Negotiations Before and During the
Contract . examined strategies for the two principal periods of
negotiations. Common sense dictates that the seller maintain
a constructive approach to Negotiations Before the Contract
whereas the buyer may gain temporary advantage by negotiating
aggressively.

The tables are turned for Negotiations During the
Contract. At this stage of the project, the seller may gain
temporary advantage by negotiating aggressively while the
buyer should maintain a constructive approach.

The eventuality of change orders in construction was the
driving force behind Negotiations During the Contract.
Documentation was stressed as a key factor for successfully
pursuing change orders and avoiding litigation.

Described in Chapter Four, Multi-sided Negotiations , were
the key elements for a chairman or team leader to consider in
chairing negotiations. The chairman should focus all his
energy and concentration on leading an effective meeting. His
opening remarks are the most critical part of the meeting.
After the opening, the chairman hopes to have established
momentum, involved the members, acquired assent to a procedure

63

and set them off to solve the problem within an agreed upon
time frame. To meet that time frame he must anticipate side-
track issues and prevent them from interrupting the main
issues.

After the opening he needs to talk relatively little
himself. He controls the meeting with gestures of hand and
face, movements of the eyes and changes of posture.

Negotiating Tactics , described in Chapter Five, are an
inherent part of all negotiations. Even if one does not use
tactics, it is necessary to understand the dynamics and
reasoning behind them. Because, whether you use them or not,
others will use them to gain maximum advantage. Forms of non-
verbal communication such as body language and silence, can be
powerful tools if used properly. Learning to use these tools
and tactics, as well as to interpret and understand when
others use them, can provide a distinct advantage for the
negotiator.

In conclusion, good negotiating skills are key to
reaching agreements. However, reaching an agreement in
negotiations is not an end in itself. A good negotiator is
tough. Do not let the desire to reach agreement make you
abandon your fundamental goals. Know your BATNA and know when
to walk away. Do not let yourself be intimidated. Try to
negotiate constructively. But when others are aggressive, you
must be aggressive. In short, the engineer may want to
remember a phrase used by John F. Kennedy during his January

64

20, 1961 inaugural address: "Let us never negotiate out of

fear, but let us never fear to negotiate." (Zoino,

1989)

65

REFERENCES

Chamberlain. Thomas R. (1985). Negotiations and Contract
Management: Closed Neaotiations-Out with the Poker

Players . ed. , David C. Johnson, Proceedings of the
Symposium on Negotiation and Contract Management, Denver,
CO, ed. David- C. Johnston. New York: American Society of
Civil Engineers.

Civitello, Jr., Andrew M. (1987), Contractor's Guide to
Change Orders . Englewood Cliffs, N. J. : Prentice-Hall.

Dawson, R. (1985), You Can Get Anything You Want But You
Have to do More than Ask: Secret Power of Negotiating.
New York: Simon & Schuster.

Gallant, Robert W. (1989) , "The Winning Edge in

Negotiations", Chemical Engineering . November, p. 229

Karrass, C. (1970), The Negotiating Game: How to get what

you want . New York: Thomas Crowell.

Karrass, C. (1974), Give and Take: The complete guide to

negotiating strategies and tactics . New York: Thomas

Crowell.

Karrass, C. (1985), Negotiate to Close . New York: Simon and
Schuster

Martin, Martin D., Ph.D., (1982), Negotiating and
Contracting for Project Management . Project Management
Institute.

Naval facilities Contracts Training Center (1986) , Student
Guide for Construction Contract Modifications (Course CTC
336-43). Port Hueneme, CA: Author

Naval facilities Contracts Training Center (1987), Student
Guide for Contract Negotiation Workshop (Course CTC 3 3 6) .
Port Hueneme, CA: Author

66

Riggenbach, Judy a. (1985), Silent Negotiations: Listen with
Your Eves . Proceedings of the Symposium on Negotiation
and Contract Management, Denver, CO, ed. David C.
Johnston. New York: American Society of Civil Engineers.

Rutherford, Robert D. (1986), "Common Mistakes made in
Negotiating," Part II, Chemical Engineering . June 9, p.95

Scott, William P. (1981) , The Skill of Negotiating . Van
Nostrand Reinhold, New York

Scott, William P. and Bertil Billing, (1990) , Negotiating
Skills in Engineering and Construction . Van Nostrand
Reinhold, New York.

Simon, Michael S. Esq. (1979), Construction Contracts &
Claims . McGraw-Hill, Inc.

Stallworthy, Ernest A. (1987), "Getting to "Yes": the art of
negotiation," The Chemical Engineer . October, p.37

Warden, Jerry T. (1989), "Playing The Negotiating Game,"
Modern Casting . March, p.47.

Wehrl-Einhorn, Robert J. Esq. (1988) , Government Contract
Law . United States Air Force Institute of Technology.

Zoino, William S. (1989), "Cautious Risk Taking," Civil
Engineering . October, p.66

67

Thesis
D7933
c . 1

Dunning

Negotiating engineering
and construction con-
tracts.

Dunning

Negotiating engineering
and construction con-
tracts.

Thesis

D7933

c.l